Merger And Acquisition Recap - Part VI

by: The Value Investor

This week I will discuss the most important merger and acquisition announcements for the week of July 2nd - July 6th. With summer holidays approaching, the number and size of the announced deals were rather moderate compared to recent weeks.

The Corporate Executive Board (EXBD) the provider of data analysis, research and advisory businesses announced the acquisition of UK based SHL valuing the company at $660 million, in an all-cash transaction. SHL, which provides cloud-based measurement and management solutions, was previously owned by HgCapital. The deal will significantly increase the company's customer base, its global presence, while saving up to $5 million in costs per annum. The Corporate Executive Board will finance the deal with existing cash balances and a $625 million credit facility.

SHL will add about $210 million in annual revenues to The Corporate Executive Board's $485 million in annual revenues. Both companies expect to close the deal by the third quarter of 2012. Shares of The Corporate Executive Board ended the week 15% higher, as investors reacted positively to the announcement of the deal. So far in 2012, shares have gained 21%, trading near its all time highs.

Dell (DELL), the global information technology company, announced the much-anticipated acquisition of Quest Software (QSFT) in a deal valuing the company at $2.4 billion. Quest Software's products include database management tools, identity software and security products, which are complementary to Dell's product portfolio, according to the company. Furthermore, the deal provides Dell with a greater footprint in the enterprise software market, which typically carries higher margins and enables the firm to connect to the cloud theme.

Shares of Quest Software have gained over 50% so far in 2012, after the company announced that it would be taken private by a private equity group led by Insight Venture Partners for $23 per share. This ignited a bidding war for the company, and eventually Dell surfaced as the winner, paying $28 per share. Shares of Dell have traded down 14% so far in 2012 after the company issued a dramatic second quarter revenue outlook in May.

Micron Technology (MU) the manufacturer of semiconductor devices, including DRAM, NAND and NOR flash memory, announced the acquisition of Japanese chip manufacturer Elpida Memory in a transaction valuing the firm at $2.5 billion. Micron will pay approximately $750 million for the business, despite the fact that Elpida is placed under bankruptcy protection. The remainder of the acquisition sum will be used to satisfy debtor claims and pay for the reorganization efforts.

The latest acquisition in the chip sector highlights the consolidation wave going through the industry. Samsung, Micron and SK Hynix will hold about 90% of the global chip market, which might help to stabilize prices in the volatile industry and boost margins for the producers. Shares of Micron ended the week 12% higher, marking year to date gains of 6%.

IXIA (XXIA) the provider of Internet Protocol test systems for wired and wireless infrastructure devices, announced the acquisition of BreakingPoint Systems, a leader in security testing. The all-cash transaction values the company at $160 million and is expected to close in the third quarter of 2012. "BreakingPoint enables IXIA to provide end-to-end solutions that monitor, tests, and optimize converged networks."

BreakingPoint reported annual revenues of $33.5 million in 2011, a growth of 40% compared to 2010. For 2012, BreakingPoint aims for another 40% revenue growth. In comparison, IXIA reported annual revenues of $308 million for 2011. The deal is expected to be accretive to non-GAAP earnings already in 2012. Shares in IXIA rose 5% over the last week, marking year to date returns of 17%.

Silgan Holdings (SLGN) the manufacturer of metal and plastics used for packaging of consumer goods announced the acquisition of Rexam's PLC plastic thermo-formed food business in a deal valuing the business at $250 million. The unit, which supplies bowls and barrier trays to food producers, has anticipated sales of around $100 million.

The acquisition will have a neutral effect on Silgan's 2012's annual earnings, and will be accretive to earnings by 2013. The acquisition will boost Silgan's annual revenues of $3.5 billion by about 3%. So far in 2012, shares have traded in a $40-$44 trading range, marking year to date gains of 11%.

Last week was a reasonably active week in terms of activity levels and deal size. The total announced deal size in the sample above came in around $6 billion. Acquisitions have been relatively small this week after some larger deals in recent weeks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.